No-arbitrage under a class of honest times

Anna Aksamit, Tahir Choulli (), Jun Deng and Monique Jeanblanc
Additional contact information
Anna Aksamit: University of Oxford
Tahir Choulli: University of Alberta
Jun Deng: University of International Business and Economics
Monique Jeanblanc: UMR CNRS 8071

Finance and Stochastics, 2018, vol. 22, issue 1, No 5, 127-159

Abstract: Abstract This paper quantifies the interplay between the no-arbitrage notion of no unbounded profit with bounded risk (NUPBR) and additional progressive information generated by a random time. This study complements the one of Aksamit et al. (Finance Stoch. 21:1103–1139, 2017) in which the authors have studied similar topics for the model stopped at the random time, while here we deal with the question of what happens after the random time. Given that the existing literature proves that NUPBR is always violated after honest times that avoid stopping times in a continuous filtration, we propose here a new class of honest times for which NUPBR can be preserved for some models. For these honest times, we obtain two principal results. The first result characterizes the pairs of initial market and honest time for which the resulting model preserves NUPBR, while the second result characterizes honest times that do not affect NUPBR of any quasi-left-continuous model (i.e., in which the asset price process has no predictable jump times). Furthermore, we construct explicitly local martingale deflators for a large class of models.

Keywords: No unbounded profit with bounded risk; No arbitrage; Honest time; Informational arbitrage; Deflators; Quasi-left-continuous semimartingales; Progressive enlargement of filtration; Stochastic calculus; 91B44; 91B70; 91G40; 60G48; 60G51; 60G57 (search for similar items in EconPapers)
JEL-codes: D80 D81 D82 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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DOI: 10.1007/s00780-017-0345-3

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